We hope you can join us on Thursday, April 21st @ 10:00am ET for our Black Book presentation on new Best Idea Short Medical Properties Trust, Inc. (MPW), which we are adding to our Position Monitor today (see Figure 1 below). MPW is one of the largest owners of hospitals in the world, and was originally formed in 2003 to acquire and build a portfolio of net-leased hospital facilities. This idea came on our radar in mid-March following two critical WSJ articles earlier in the year and subsequent client calls.
We dug into the company, and came to several conclusions: (1) the economics of the hospital business are VERY tough with thin pre-rent operating margins pre-COVID, which are only getting worse post-COVID amidst rapidly rising labor costs, (2) MPW is AT BEST steeply over-valued relative to the disappointing economics of its deals, (3) the earnings quality and cash flow conversion of MPW are demonstrably deteriorating at an accelerating rate, potentially putting the dividend at risk, (4) MPW's relationship and support (via transactions, loans and a direct equity stake) of a key hospital operating partner in Steward is suspect at best and warrants serious scrutiny, (5) the company's compensation scheme is egregious and management has been selling stock at an accelerating rate, and (6) under a "downside" or "ultimate" Bear Case scenario the entity treated as the owner of the hospital system may have no equity value. We believe MPW deserves a significantly higher cost of capital in the market, and are confident that Steward is likely not covering its rent on a pro forma basis.
EVENT LINK: CLICK HERE (video, dial-in, materials links)
KEY PRESENTATION TOPICS INCLUDED
- MPW's declining earnings quality and cash flow conversion
- Inferior cash economics / returns relative to GAAP yields
- Economics at the hospital operator level
- Operator liquidity support via loans, RIDEA / equity interests, optically non-arm's length transactions
- Relationship with Steward
- Egregious compensation arrangements and management stock sales
- Valuation
- Q&A
Please e-mail with any questions.
Figure 1: Updated Hedgeye REITs Position Monitor
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
